Domino's Pizza Announces Third Quarter 2012 Financial Results

ANN ARBOR, Mich., Oct. 16, 2012 /PRNewswire/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the third quarter ended September 9, 2012. Domestic stores posted a healthy same store sales increase of 3.3%. The international division again posted strong results with net store growth of 121 stores in the quarter and same store sales growth of 5.0%, marking this division's 75^th consecutive quarter of same store sales growth. Diluted EPS was 44 cents as reported for the quarter. On an as adjusted basis, diluted EPS was 43 cents, a 22.9% increase over the third quarter of 2011. During the quarter, the Company also repurchased and retired 189,718 shares of its common stock, at a total cost of $5.9 million.

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J. Patrick Doyle, Domino's President and Chief Executive Officer, said:  "I believe that the consistent, positive performance we have been able to achieve is the mark of a great brand and a great team. This quarter, our franchise partners around the world have collectively reached an important 10,000-store milestone. This puts Domino's among the largest international restaurant brands in the world. Our system's ability to repeat and maintain strong results - coupled with our commitment to innovation and continuous improvement - gives us confidence that we have lots of runway for growth in the years to come."

Third Quarter Highlights:

• Revenues were up 0.5% for the quarter versus the prior-year period, due primarily to higher same store sales in domestic and international stores and store count growth in international markets. These increases were partially offset by lower Company-owned store revenues resulting from the sale of Company-owned stores in 2011 and the adverse impact of the stronger dollar on international royalty revenues.
• Net Income was up 17.6% for the quarter versus the prior-year period, primarily due to domestic and international same store sales growth, international store growth and higher domestic Company-owned store margins. The stronger dollar partially offset these increases due to the adverse foreign currency exchange impact on international royalties. For the three fiscal quarters of 2012, higher domestic and international same store sales and international store growth led to higher net income, which was partially offset by expenses incurred in connection with the Company's 2012 recapitalization.
• Diluted EPS was 44 cents on an as-reported basis for the quarter versus 36 cents in the prior-year quarter. On an as-adjusted basis, diluted EPS was 43 cents for the quarter versus prior year adjusted EPS of 35 cents. The eight cent or 22.9% increase in adjusted EPS was primarily due to both domestic and international same store sales growth, international store growth, higher domestic Company-owned store margins and lower weighted average diluted shares outstanding as a result of share repurchases over the trailing four quarters.  This was partially offset by foreign currency exchange rates and a higher adjusted effective tax rate. (See the Items Affecting Comparability section and the Comments on Regulation G section.)
• Global Retail Sales were up 4.9% in the third quarter, or up 8.4% when excluding the impact of foreign currency.

Conference Call Information

The Company will file its quarterly report on Form 10-Q this morning.  As previously announced, Domino's Pizza, Inc. will hold a conference call today at 10 a.m. (Eastern) to review its third quarter 2012 financial results. The call can be accessed by dialing (888) 306-6182 (U.S./Canada) or (706) 634-4947 (International). Ask for the Domino's Pizza conference call.  The call will also be webcast at www.dominosbiz.com. If you are unable to participate on the call, a replay will be available for 30 days by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International), Conference ID 41247893. The webcast will also be archived for 30 days on www.dominosbiz.com.

Share Repurchases

During the third quarter of 2012, the Company repurchased and retired 189,718 shares of its common stock under its Board of Directors-approved open market share repurchase program, at a total cost of approximately $5.9 million, or an average price of $30.85 per share. Subsequent to the third quarter of 2012, the Company repurchased and retired an additional 106,573 shares of its common stock at a total cost of approximately $3.7 million, or an average price of $34.98 per share.

Items Affecting Comparability

The Company's reported financial results for the third quarter and three fiscal quarters of 2012 are not comparable to the reported financial results for the equivalent prior-year period. The table below presents certain items affecting comparability between 2012 and 2011 financial results. Management believes including such information is critical to the understanding of its financial results for the third quarter and three fiscal quarters of 2012 as compared to the same periods in 2011 (See the Comments on Regulation G section).

In addition to the items noted in the table below, the Company had lower weighted average diluted shares outstanding that resulted in an increase in diluted EPS of approximately two and one-half cents in the third quarter of 2012 and seven and one-half cents in the three fiscal quarters of 2012.

Liquidity

As of September 9, 2012, the Company had approximately:

• $34.6 million of unrestricted cash and cash equivalents,
• $1.57 billion in total debt,
• $60.3 million of available borrowings under its $100.0 million variable funding notes, net of letters of credits issued of $39.7 million.

The Company's cash borrowing rate averaged 5.3% in the third quarter of 2012, versus 5.9% in the third quarter of 2011. The Company invested $14.3 million in capital expenditures during the three fiscal quarters of 2012 versus $13.1 million in the three fiscal quarters of 2011. 

During the second quarter of 2012, the Company paid approximately $184.9 million related to the $3.00 per share special dividend and equivalents declared by the Company's Board of Directors in connection with the 2012 recapitalization. 

The Company's free cash flow, as reconciled below to cash flows from operations as determined under generally accepted accounting principles (GAAP), was approximately $87.0 million in the three fiscal quarters of 2012.

Comments on Regulation G

In addition to the GAAP financial measures set forth in this press release, the Company has included non-GAAP financial measures within the meaning of Regulation G due to items affecting comparability between fiscal quarters.  The Company has also included metrics such as global retail sales growth and same store sales growth, which are commonly used statistical measures in the quick-service restaurant industry that are important to understanding Company performance.

The Company uses "Diluted EPS, as adjusted," which is calculated as reported Diluted EPS adjusted for the items that affect comparability to the prior year period discussed above.  The most directly comparable financial measure calculated and presented in accordance with GAAP is Diluted EPS.  Management believes that the Diluted EPS, as adjusted measure is important and useful to investors and other interested persons and that such persons benefit from having a consistent basis for comparison between reporting periods.  Management uses Diluted EPS, as adjusted to internally evaluate operating performance, to evaluate itself against its peers and to determine future performance targets and long-range planning.  Additionally, the Company believes that analysts covering the Company's stock performance generally eliminate these items affecting comparability when preparing their financial models, when determining their published EPS estimates and when benchmarking the Company against its competitors.   

The Company uses "Global retail sales" to refer to total worldwide retail sales at Company-owned and franchise stores. Management believes global retail sales information is useful in analyzing revenues because franchisees pay royalties that are based on a percentage of franchise retail sales. Management reviews comparable industry global retail sales information to assess business trends and to track the growth of the Domino's Pizza^® brand. In addition, domestic supply chain revenues are directly impacted by changes in domestic franchise retail sales. Retail sales for franchise stores are reported to the Company by its franchisees and are not included in Company revenues.  

The Company uses "Same store sales growth," calculated by including only sales from stores that also had sales in the comparable period of the prior year.  International same store sales growth is calculated similarly to domestic same store sales growth.  Changes in international same store sales are reported on a constant dollar basis, which reflects changes in international local currency sales. 

The Company uses "Free cash flow," calculated as cash flows from operations less capital expenditures, both as reported under GAAP.  Management believes that the free cash flow measure is important to investors and other interested persons, and that such persons benefit from having a measure which communicates how much cash flow is available for working capital needs or to be used for repurchasing debt, making acquisitions, repurchasing common stock, paying dividends or other similar uses of cash.

About Domino's Pizza^®

Founded in 1960, Domino's Pizza is the recognized world leader in pizza delivery. As of third quarter 2012, Domino's operated a network of 10,040 franchised and Company-owned stores in the U.S. and over 70 international markets. During the third quarter, Domino's had global retail sales of nearly $1.7 billion: nearly $800 million domestically and over $862 million internationally. Domino's had global retail sales of over $6.9 billion in 2011. In October 2012, Domino's debuted its Handmade Pan Pizza, touting the product's fresh, never-frozen dough and establishing itself as a player in the Pan Pizza market. In September 2012, Domino's opened its 10,000^th store, becoming one of only eight restaurant chains in the world to reach that milestone. In May 2011, Pizza Today named Domino's its "Chain of the Year" for the second straight year – making the company a three-time overall winner, and the first pizza delivery company to receive the honor in back-to-back years. In 2011, Domino's was ranked #1 in Forbes Magazine's "Top 20 Franchises for the Money" list.

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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

This press release contains forward-looking statements. You can identify forward-looking statements because they contain words such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or similar expressions that concern our strategy, plans or intentions.  These forward-looking statements relating to our anticipated profitability, estimates in same store sales growth, the growth of our international business, ability to service our indebtedness, our operating performance, trends in our business and other descriptions of future events reflect management's expectations based upon currently available information and data.  However, actual results are subject to future risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.  The risks and uncertainties that could cause actual results to differ materially include: the level of our long-term and other indebtedness; uncertainties relating to litigation; consumer preferences, spending patterns and demographic trends; the effectiveness of our advertising, operations and promotional initiatives; the strength of our brand in the markets in which we compete; our ability to retain key personnel; new product and concept developments by us, and other food-industry competitors; the ongoing level of profitability of our franchisees; and our ability and that of our franchisees to open new restaurants and keep existing restaurants in operation; changes in food prices, particularly cheese, labor, utilities, insurance, employee benefits and other operating costs; the impact that widespread illness or general health concerns may have on our business and the economy of the countries where we operate; severe weather conditions and natural disasters; changes in our effective tax rate; changes in government legislation and regulations; adequacy of our insurance coverage; costs related to future financings; our ability and that of our franchisees to successfully operate in the current credit environment; changes in the level of consumer spending given the general economic conditions including interest rates, energy prices and weak consumer confidence; availability of borrowings under our variable funding notes and our letters of credit; and changes in accounting policies.  Important factors that could cause actual results to differ materially from our expectations are more fully described in our other filings with the Securities and Exchange Commission, including under the section headed "Risk Factors" in our annual report on Form 10-K and our quarterly report on Form 10-Q for the quarter ended September 9, 2012.  Except as required by applicable securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 

SOURCE Domino's Pizza, Inc.